Calculate the price of the right

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You are a shareholder in XViti Limited. XViti Limited's shares are trading in the market at $7.50. XViti Ltd today announced a renounceable rights issue offer which provides you with a right to subscribe for one new share at $6.50 for each 4 shares that you hold.

(a) Explain the effect of the offer being renounceable and consider one of the shareholders' perspectives in this rights issue and develop an argument for why it should be the most important/credible option for a shareholder.

(b) Calculate the price of the right.

(c) Calculate the theoretical ex-rights share price.

Reference no: EM132668480

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